ROTH IRAs
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Transcript of ROTH IRAs
ROTH IRAs
2
PLEASE DO NOW…
In your notebooks, please answer the following
questions:
1.What are the advantages of a traditional IRA?
2.Is it better to be taxed on IRA distributions or
is it better to be taxed on your IRA
contributions? Please explain.
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TODAY’s GOALS
• What is a Roth IRA?
• Who is eligible to establish a Roth IRA?
• How can we contribute to a Roth IRA?
• Distributions from a Roth IRA.
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INVESTMENT MANAGEMENT STANDARD(S)
Achievement Standard: Evaluate savings and investment options to meet short and long-term goals.
Achievement Standard: Evaluate services provided by financial deposit institutions to transfer funds.
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DEFINITIONS to KNOW
ROTH IRA
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WHAT IS A ROTH IRA?
A retirement account where contributions are NEVER tax-deductible (they are taxed!!!) and earnings grow on a tax-free basis.
An excellent supplement to an individual’s retirement income.
In general, assets in the Roth IRA are NOT taxed when they are withdrawn.
ROTH IRA Video
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WHO IS ELIGIBLE TO ESTABLISH A ROTH IRA?
Any individual, regardless of age, who has taxable compensation for the year.
Any individual, regardless of age, who has self-employment income for the year.
To make a contribution, the individual must have a modified adjusted gross income (MAGI) that is less than a certain amount.
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HOW CAN WE CONTRIBUTE TO A ROTH IRA?
1)Make a contribution to your Roth IRA account.
2)Make a contribution to your spouse’s Roth IRA account.
3)Transfers.
4)Rollover contributions.
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DISTRIBUTIONS FROM A ROTH IRA
In general, distributions from a Roth IRA must NOT occur before age 59½.
In general, distributions that occur before 59½ will be charged a 10% early distribution penalty.
Qualified distributions from a Roth IRA are ALWAYS tax-free.
Non-qualified distributions from a Roth IRA may be taxed.
There are some exceptions to the 10% penalty rule.
A Roth IRA owner does NOT have to take required minimum distributions (RMDs) the year he or she reaches age 70½.
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WHAT IS THE DIFFERENCE BETWEEN A TRADITIONAL AND ROTH IRA???
Traditional IRA: taxes are paid on the back end, or when you take distributions. Your original investment, plus all earnings are taxed! Roth IRA: taxes are paid on the front end, or when you make contributions. Your original investment is taxed, your earnings are not taxed!
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WHAT IS THE DIFFERENCE BETWEEN A TRADITIONAL AND ROTH IRA???
Video: Roth IRA vs. Traditional IRA
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LET’s PRACTICE…
Jack, age 61, takes a $6,000 distribution from his Roth IRA. His income tax bracket is 35%. How much will he be taxed on the distribution?
Solution:
Taxes on Roth IRA QUALIFIED Distributions =
$0.00
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A LOOK AHEAD…
Understanding the P/E Ratio
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QUESTIONS???